Electricity Producer Achieves Outstanding Results

Hidroelectrica, Romania’s biggest electricity producer registered record profits of € 266 million (lei 1,198 million) in 2014, an increase in profits of 33% over the 2013 result (€200 million or lei 902 million). In January 2015 alone, Hidroelectrica earned €31.1 million in gross profits, almost double the January 2014 total, and its January 2015 turnover was €72million, by 42% higher compared to January 2014 and by 69% higher compared to January 2013.

In addition, Hidroelectrica produced and delivered 1,590 GWh in January 2015, a 36% increase compared to January 2014 and a 66% increase compared to January 2013. Hidroelectrica also reduced its operating costs last year to the lowest level in its history and was ranked as Romania’s most profitable enterprise.

Stellar performance since 2012

This stellar track record is particularly impressive since Hidroelectrica entered insolvency in 2012. Remus Borza, head of Euro Insol, Hidroelectrica’s judicial administrator, explains: “By implementing its reorganisation plan to the letter, Hidroelectrica entered a new era of prosperity. It has reduced its overall debt from almost €900 million in 2012 to €264 million in January 2015, and from a €110 million loss in 2012, Hidroelectrica achieved a total of approximately €500 million in cumulated profits in 2013 & 2014. In 2014 Hidroelectrica’s EBITDA margin was of 63%. Name another company in the world which achieves 63% EBITDA! In 2014, Hidroelectrica outpaced Europe’s energy leaders Fortum (Finland) and Verbund (Austria).”

Hidroelectrica also reduced its liabilities to creditors by 82% between June 2012 and December 31, 2014, by strictly complying with the payments schedule outlined in its reorganisation plan. The company’s credit-line balance has dropped by 89.16% since 2012. Over the same period, Hidroelectrica improved its net treasury from a negative of €172.5 million in June 2012 to a positive one of €110 million in December 2014.

Factors behind insolvency

Remus Borza explains why a company performing this well became insolvent. He says, “A hydropower producer in a developed country would normally not become insolvent because the producer is using the cheapest raw material – water — and in 24 out of the 28 EU countries, water is not taxed. In Romania, however, water used for the production of electrical power is heavily taxed. In addition, the holders of energy-supply contracts in Romania purchased electrical power from Hidroelectrica very cheaply, well below market price and even below the cost price. Added to this, the company’s management was made up of 90% political appointees. Because of these factors, Hidroelectrica became the most indebted company in Romania in 2012.”

Brought in to oversee Hidroelectrica’s reorganisation, Euro Insol renegotiated contracts and profoundly improved the company’s management, including appointing new managers and teams to handle finances and accounting, trading, internal audits, IT&C, risk management and internal controls. In addition, Euro Insol developed a restructuring plan which was approved by almost 100% of Hidroelectrica’s creditors and lending institutions. Remus Borza says, “In my experience as an attorney for over 20 years and an insolvency practitioner for almost 15 years, I have never seen such a large majority of creditors approving a reorganisation plan. Once adopted, this plan became law for Hidroelectrica, which has operated with total openness and transparency.”

Hidroelectrica continues to perform well. Remus Borza points out, “We estimate the production in 2015 to be similar to that recorded last year, somewhere around 18TWh, along with financial results at least equal to the €266 million in profits Hidroelectrica achieved in 2014.” Looking to the future, Hidroelectrica will focus on optimisation and margin maximisation of its energy sales through new trading, risk and portfolio-management procedures.

To continue to reach its ambitious targets, Hidroelectrica is expanding its European presence. In addition to trading on Romania’s OPCOM-OTC market, Hidroelectrica was licensed to operate in Hungary in late 2014 and recently opened an office in Budapest. Hidroelectrica plans to open a subsidiary in Belgrade, Serbia, and has developed a new strategy for medium and long-term trading.

Strong investor interest in planned IPO

Given its recent exceptional performance in spite of its insolvency, Hidroelectrica’s planned IPO, set for the first half of 2016, has attracted significant investor interest. As Remus Borza points out, “Hidroelectrica’s listing will not only be a major event in Romania, but in Europe as well. In the past two years, I’ve had many meetings with large investment funds in New York, London and Bucharest. All have expressed interest in Hidroelectrica. I anticipate that Hidroelectrica will obtain at least €500 million for the 15% of share capital which will be listed.”

Euro Insol has implemented a detailed plan for the IPO, which will be overseen by Morgan Stanley and Raiffeisen Capital&Investment Consortium. Remus Borza says, “Gabriel Dumitrascu, who endorsed the listings of two other Romanian state-owned energy companies, Nuclearelectrica and Electrica, is part of Hidroelectrica’s IPO team. We want to launch the IPO just a few months after getting Hidroelectrica out of insolvency and exiting the reorganisation process. I can only urge all investors to keep a close eye on Hidroelectrica.”